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UK to consult on conditional indexation ban

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  • UK to consult on conditional indexation ban

UK - The government has rejected an amendment to the Pensions Bill 2008 removing the ban on conditional indexation, in favour of a risk-sharing consultation to be issued in June.

In the latest meeting of the Pensions Bill Committee, Mike O'Brien, the minister for pensions reform, rejected the 'new clause 5' drafted by the Association of Consulting Actuaries (ACA), on the grounds the issue needed to be looked at with "more care and consideration".

O'Brien said while he did not disagree with a great deal of the argument put forward to support the ban on conditional indexation, he argued there is a need to have a "proper discussion and consultation before we start to legislate".

He said the UK government is "interested in conditional indexation and risk-sharing" in pension arrangements and claimed ACA's work had raised an "issue with some potential" but warned he was not prepared "to rush through legislation".

O'Brien admitted the government does not know enough about the impact of such proposals and said at "such a delicate time for defined benefit schemes, it would be irresponsible not to take a bit more time to assess and to be clear about the impact on existing provision and the potential impact on the members of such schemes".

As the clause would also require changes to other measures relating to employer debt, scheme funding, surplus transfer values and disclosure, O'Brien instead revealed he had commissioned officials to "undertake a detailed analysis" of the risk-sharing proposals ahead of a full consultation paper to be issued in June, and ready for a report in the autumn.

"We can then take informed decisions that will be built on a consensus after proper consultation. If we need to make primary legislative changes we will have to find a timetable to do so, perhaps in a fourth-session Bill," he added.

But Ian Farr, chairman of the ACA, pointed out the new consultation would result in a four-month delay in "getting anything moving" and questioned why O'Brien could not organise a "quick final consultation to fine-tune the legislation" and remove the ban on new conditional indexation schemes as a "first step". 

He suggested other "less well-developed risk-sharing options" can then be included in the slower moving consultation exercise proposed by the minister.      

"Hopefully, the Lords will apply pressure to make sure the amendment will still find its way into this year's Bill and Act," added Farr.

The National Association of Pension Funds (NAPF) also urged the government to include legislation in the current Pensions Bill to make it easier to implement any changes resulting from the consultation.

Joanne Segars, chief executive of the NAPF, said the single most important thing the government can do to ensure the future of DB provision would be to lighten the regulatory load, including greater risk-sharing.

But she warned: "There is a clear urgency to ease the pressure on DB schemes because over the last few weeks the renewed stability in the DB sector has come under threat.

"We urge the government to consider taking powers in the current Pensions Bill to allow a swift legislative conclusion to the outcome of this consultation," added Segars.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com


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